Bedwell v Stapleton [1954] HCA 33; (1954) 94 CLR 567 (4 August 1954)

HIGH COURT OF AUSTRALIA

BEDWELL v. STAPLETON [1954] HCA 33; (1954) 94 CLR 567

Bankruptcy - Money-lenders

High Court of Australia
Dixon C.J.(1), McTiernan(1), Webb(1), Fullagar(1) and Kitto(1) JJ.

CATCHWORDS

Bankruptcy - Prior transaction - Business purchased for bankrupt in name of third person - Advance of purchase money by third person to bankrupt - Agreement for repayment of purchase price with interest plus additional sum of money - Procuration fee - Validity of transaction - Whether property held in trust for bankrupt.

Money-lenders - Procuration fees - Moneys "charged, recovered or received" - Whether actual recovery etc. of money necessary - Severability of illegal portion of transaction - The Money Lenders Acts 1916 to 1946 (Q.), s. 14 (1), (2).

HEARING

Brisbane, 1954, July 27, 28; August 4. 4:8:1954
APPEAL from the Federal Court of Bankruptcy, District of Southern Queensland.

DECISION

August 4.
THE COURT delivered the following written judgment:-
This is an appeal against an order of the Supreme Court of Queensland The appeal is brought pursuant to s. 73 (ii.) of the Constitution and s. 26 (2) of the Bankruptcy Act. The order which was made by Hanger J. declared, on the motion of the official receiver, who is the respondent to the appeal, that certain property was held by the appellant in trust for a bankrupt. The bankrupt is one Colin Joseph Demsey who, before his bankruptcy, engaged in the conduct of a business of a motor garage and service station in Toowoomba. It appears that in the early part of 1950 Dempsey was inspired by a desire to purchase the business of Dux Motors, the motor garage and service station in question. An agreement was actually drawn up for the purchase by Dempsey of the business from the proprietor, Robert Graham Neild. Neild held the premises under a sub-lease expiring on 30th January 1954 containing a covenant not to assign without the written consent of the head lessor and sub-lessor. There was nothing to recommend Dempsey to the lessor or to the sub-lessor as a tenant and, indeed, nothing to recommend him as a purchaser to Neild. In point of fact he lacked money and was not a person of any substance. The proposed purchase, therefore, could not go on. Finding himself not in a situation to proceed with it Dempsey resorted in his need to the appellant Bedwell. Bedwell was prepared to find the money for the purchase price, a sum of 2,300 pounds, and so make the purchase possible. The draft agreement was altered by striking out Dempsey's name and substituting that of Bedwell as purchaser. There was no difficulty about Bedwell's securing the approval of the lessor and sub-lessor as the assignee of the lease or fulfilling the contract of purchase. An assignment to him of the sub-lease was executed. It was not registered under the Real Property Act until 12th March 1952 but that is not material. Bedwell paid the whole of the purchase money to Neild. It was, however, Dempsey who was placed in possession of the premises and who actually proceeded to conduct the business. Moreover, in February 1952 he was registered under the Firms Act as constituting the firm called Dux Motors. (at p571)

2. The first step in the case is to determine the true nature of the transaction between Bedwell and Dempsey. Hanger J. did not find it easy to ascertain the true character of the relationship because he was not prepared to rely upon the evidence of Bedwell and because, as is apparent, Dempsey's evidence was vague, contradictory and elusive, and because in any case the latter's credibility was of no high order. It is unnecessary to discuss the facts or the evidence. It is enough to say that we agree in the view that Hanger J. adopted. His Honour found that the relationship between Dempsey and Bedwell was that of borrower and lender and that the assets were taken in the name of Bedwell by way of security for the loan. But he found too that it was a term of the loan that Dempsey should pay to Bedwell, not the sum of 2,300 pounds constituting the purchase price, but a sum of 2,550 pounds, a term that in the learned judge's opinion contravened s. 14 of The Money Lenders Acts 1916 to 1946 prohibiting charges in the nature of procuration fees. His Honour found that in addition interest was to be charged at five per cent per annum. There is but slender evidence of this fact, but we think that the finding was justified. To state the transaction between Dempsey and Bedwell more precisely, its terms were that Bedwell should pay to the vendor Neild the sum of 2,300 pounds constituting the purchase price and do so by way of advance to Dempsey, that Bedwell should become the purchaser from Neild in order that he might have as a security the property in the lease, the plant and other assets of the business, except stock, which was separately purchased by Dempsey, and that Dempsey should pay to Bedwell within a reasonable time 2,550 pounds, with interest at five per cent per annum in the meantime. (at p572)

3. It will be seen that Bedwell became the legal owner of the lease, plant and assets of the business other than stock as a mortgagee. Dempsey became entitled to an equity of redemption; there was no defeasance drawn up in writing, but Dempsey's equity to redeem arose from the fact that Bedwell obtained the legal title in order to secure repayment of the loan together with interest and the additional sum of 250 pounds. He was entitled to have the property transferred to him upon paying 2,550 pounds with interest according to the terms of the oral contract. (at p572)

4. It seems to be clear enough that the addition of the sum of 250 pounds to the amount advanced is of a description that if charged recovered or received would fall within the first paragraph of s. 14 of The Money Lenders Acts 1916 to 1946 (Q.). The material words of that paragraph provide that it shall not be lawful for any person to charge, recover, or receive, directly or indirectly, any moneys for or in respect of the making of any loan. Hanger J. held that the transaction violated this provision. His Honour then proceeded to apply sub-s. (2), which provides that every contract made or entered into or transaction entered into or performed in breach of or with intent to evade or avoid the section shall be absolutely void. The result of applying the section was, in his Honour's view, to make the entire transaction void and to leave Bedwell in the position of trustee. It was on that basis that the declaration was made declaring him to be a trustee of the sub-lease and other assets of the business for the official receiver as a trustee of Dempsey's estate. (at p572)

5. We think that there are two answers to this conclusion on which we are prepared to base our decision. But before dealing with them it is desirable to refer to a question concerning the application of the first paragraph of s. 14 to the transaction at the stage which it had reached. It is a question whether upon their true meaning the words "to charge, recover or receive" cover the mere making of the verbal contract that Dempsey should pay and Bedwell should receive the additional sum of 250 pounds. That is to say it is suggested that it is not enough that a mere executory promise should be made to pay moneys of the forbidden description; a violation of the paragraph does not take place unless and until there is either a recovery or a receipt of the money or something amounting to a charge in account which would be tantamount to payment. Much support for this suggestion is found in sub-s. (3), and perhaps a little more in the second part of sub-s.(2) of s. 14. The latter provision says that any money or money's worth directly or indirectly paid or allowed to or received by any person in contravention of the section may be recovered by the borrower from such person. This looks as if the words "paid or allowed to or received" are regarded as synonymous with "charge, recover or receive". Sub-section (3) uses in the same context the identical words of par. 1. It provides that any person guilty of an offence against the section shall be liable to the penalty provided, and, in addition, upon conviction the court may order him to repay any moneys charged, recovered or received by him contrary to the provisions of the section. It seems clear enough that the word "charged" in sub-s. (3) refers to some deduction, charge in account or other means of placing the lender in funds or imparting to him the actual benefit of the moneys of the forbidden description. It is suggested that it has the same meaning in the first paragraph of s. 14. This would mean that although the sum of 250 pounds if paid would have borne the character of moneys "charged or received for or in respect of the making of a loan", a breach of the section had not occurred because the actual charging or receiving lay in the future. Except for this point there can be no doubt that the sum of 250 pounds was of the forbidden description. It is true that it was exacted by the lender himself and not an agent or third party, but there is nothing to exclude the lender from the category of persons upon whom the prohibition should operate. (at p573)

6. We are disposed to think that the words in sub-s. (2) "every contract made" contemplate an executory contract to charge or receive moneys of the kind in question, notwithstanding the difficulties which the words "in breach of this section" must occasion in view of the foregoing considerations. We therefore pass to the two matters which appear to us to afford answers to the declaration made. (at p573)

7. In the first place we are of opinion that upon the proper construction of sub-s. (2) of s. 14, having regard to the subject matter and the context, it does not mean to annihilate any more of a transaction comprising a charge, recovery or receipt obnoxious to the first paragraph of s. 14 than affects or relates to the moneys of the prohibited description. It does not avoid the whole transaction of which the charge in the nature of a procuration fee forms only an incident or part. It may be that the words of sub-s. (2) "every contract made or entered into or transaction entered into or performed in breach . . . of this section" are capable of an application extensive enough to cover the entirety of the contract or transaction which contains a term or provision for a charge or recovery or receipt of moneys of a forbidden description. But they are equally capable of an application restricted to the term or condition which contravenes the first paragraph of s. 14. Statutory provisions invalidating transactions are not to be construed more widely than their language requires or the purpose of the legislation demands. In In re Burdett; Ex parte Byrne (1888) 20 QBD 310 , Fry L.J., delivering the judgment of the Court of Appeal, said : - "In our judgment, clauses in statutes avoiding transactions or instruments are to be interpreted with reference to the purpose for which they are inserted, and, when open to question, are to receive a wide or a limited construction according as the one or the other will best effectuate the purpose of the statute (per Turner L.J. in Jortin v. South-Eastern Ry. Co. (1854) 6 De GM & G 270, at p 275 (43 ER 1237, at p 1239) " (1888) 20 QBD, at p 314 . The evident policy of this legislation is to penalize and prevent the exaction of what may briefly be described as payments in the nature of procuration fees and to require the repayment thereof if they are obtained. There is no reason to suppose that it was intended to destroy the validity of the entire transaction if such an exaction forms an incident in it or is attendant upon it. It is to be noticed that the sum of money which is recoverable by the borrower under the second part of sub-s. (2) is the money or money's worth paid, allowed to or received by any person in contravention of the section, not the full loan, if it has been repaid in full, or so much as has been repaid. In the same way, under sub-s. (3) when the court imposes a penalty for an offence against the first paragraph of sub-s. (1) the court cannot order the repayment of any moneys except moneys charged, recovered or received contrary to the provisions of the section. These considerations point to the conclusion that sub-s. (2) avoids only so much of the transaction as offends against par. 1 of s. 14 or, to express the same view in another way, it renders the transaction, not completely ineffectual, but ineffectual to accomplish a result offending against that paragraph. In the somewhat similar provision contained in s. 15 (2) express words are ontroduced limiting the invalidity of the particular transaction against which s. 15 is directed. It is to be invalid to the extent that it is in breach of that section. It is suggested that the legislature intended to draw a distinction between the two provisions in this respect. But the higher degree of probability is that each provision was based on the same policy and that the difference in expression is due to the accidents or exigencies of drafting. (at p575)

8. For the reasons given we construe sub-s. (2) as invalidating only so much of the arrangement between Bedwell and Dempsey as would result in requiring Dempsey to pay an extra 250 pounds. This conclusion accords with the decision of E. A. Douglas J. in Siemon v. Gray (1939) QWN 36 . His Honour said of a contract of mortgage which included a procuration fee: "I cannot see that, because that stipulation is in contravention of the provisions of The Money Lenders Act, the whole contract of mortgage is made unenforceable" (1939) QWN, at p 63 . After setting out the words of sub-s. (2) his Honour proceeded: "It appears to me that that provision relates to the forbidden transaction of the extra charge or procuration fee" (2). We think this view is to be preferred to that expressed by Hanger J. in Re Goldner (1953) 16 ABC 102; (1953) QSR 138 , or by Matthews J. in Re Buckley (1953) 16 ABC 247; (1953) QSR 219 . From what has been said it follows that the transaction between Dempsey and Bedwell resulted in Bedwell's becoming mortgagee of the sub-lease, plant and other assets of the business in respect of a debt of 2,300 pounds with interest at five per cent, which debt was enforceable against Dempsey as a personal obligation as well as against the security. Dempsey is entitled to an equity of redemption on paying the sum of 2,300 pounds, with interest at five per cent, in the meantime. (at p575)

9. But in the second place we think that, even had our construction of the section been different, that is to say had we been of opinion that sub-s. (2) of s. 14 annihilated the whole contract or transaction which included the charge of the procuration fee, the invalidity could not have extended further than the debt for money lent. Bedwell entered into the contract with Neild. As between Neild and Bedwell it was a valid contract. He obtained an assignment of the lease from Neild and that assignment was registered. It was a valid assignment which, on no construction to which s. 14 (2) is possibly open, could that section invalidate. Bedwell therefore stood as the legal owner of the lease, the plant and assets of the business. The fact that the contract which imposed the personal liability for the debt was invalidated would not in itself be sufficient to entitle Dempsey to assert an unconditional equitable title to the property. It would leave him in much the same situation as if in a legal mortgage of real estate under the general law the personal covenant was invalidated. He would have no title in equity to the property except on terms that he himself did the essential equity of paying the amount provided by Bedwell to acquire the property. The mere invalidating of the contract of loan could not result in Bedwell's becoming a bare trustee for Dempsey of the property which Bedwell had acquired in his own name in order to secure repayment of the sum provided. On the most favourable hypothesis to the respondent s. 14 did nothing more than destroy the contract of loan, leaving Bedwell legal owner of the assets. Neither expressly nor impliedly does it confer upon Dempsey any greater right to the assets than otherwise he would possess. No doubt Dempsey was, and the respondent as his successor in title is, entitled in equity to obtain the property in the sub-lease and assets, but only upon fulfilment of the condition or term that Bedwell should be repaid with interest the amount he provided or advanced in order to acquire the legal interest in the assets. This is the clear result of the principles explained and applied in Lodge v. National Union Investment Co. (1907) 1 Ch 300 ; Langman v. Handover [1929] HCA 42; (1929) 43 CLR 334; (1929) 29 SR (NSW) 435; 46 WN 46 ; and Automobile & General Finance Co. Ltd. v. Hoskings Investments Ltd. (1934) 34 SR (NSW) 375; 51 WN 129 . (at p576)

10. On both the foregoing grounds we think that the appellant Bedwell was not a trustee of the lease and the assets of the business but held them as security for the repayment of the amount of 2,300 pounds with interest at five per cent per annum. The first ground we have given means that he is a creditor of the estate, but a secured creditor, the security being the property mentioned. (at p576)

11. For these reasons we think the appeal should be allowed and the order of Hanger J. discharged. In lieu thereof the application of the official receiver to the Supreme Court in Bankruptcy should be dismissed. (at p576)

ORDER

Appeal allowed with costs. Order dated 28th January 1954 of the Supreme Court exercising jurisdiction in bankruptcy discharged. In lieu thereof order that the motion be dismissed with costs.